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A big gamble for Vermont

Posted:
02/19/2013 01:00:00 AM EST

Tuesday February 19, 2013

The Shumlin administration recently disclosed the $1.6 billion tax impact of its proposed single payer health care system, Green Mountain Care. The report, produced by the University of Massachusetts Medical School, projects that $1.6 billion will be needed by 2017 to complement Medicare, Medicaid, current Vermont state taxes and federal revenues to support the system's $6 billion total estimated cost. UMass was paid $300,000 for their report.

In 2011 and 2012, I projected costs of Green Mountain Care to be $1.8 billion; darned close to UMass' estimate. But, unlike the UMass projection, I included a 5 percent reserve for losses as well as costs for in-migration and increased utilization which account for the difference.

Both estimates are big numbers - so what do they mean for Vermonters?

The UMass report suggests options for raising $1.6 billion in taxes but does not recommend or study a funding plan. Realistically, only a couple taxes will raise revenues of this magnitude: the payroll tax, income tax or some combination of the two. Other taxes, such as sales tax, could not generate the needed revenue even if increased to extreme levels.

Payroll and income taxes

To raise $1.8 billion with a payroll tax, the average Vermonter's gross wages would be taxed at about 15 percent This tax does not exist today and the portions to be paid by the employer and employee need to be sorted out.

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Today, employers spend about 11 percent of payroll on health care while employees contribute a share of the premiums and out-of-pocket costs. Single payer advocates argue that Green Mountain Care taxes will replace premiums. UMass suggests taxes would be progressive -- that middle and high income earners will pay a higher rate. The average working Vermont family makes over $60,000 in wages and likely will pay more into the system through cost sharing and out of pocket costs.

If we use the personal income tax rates must increase almost fourfold to raise the $1.8 billion, assuming such rates don't drive people from Vermont. A combination of payroll tax and personal income tax is most likely, but Vermont's labor market is stagnant due to demographic trends so payroll and income-based revenue will decline over time.

Provider reimbursements

To slow the growth of health care costs The Green Mountain Care Board recently capped hospital revenues at 4 percent. The UMass report goes further, capping provider reimbursements at 105 percent of Medicare levels for all services; though providers currently receive about 129 percent of Medicare reimbursements inclusive of private insurance and Medicaid.

The UMass report projects out-of-pocket health care costs for Vermonters at $846 million in 2013. The report does not show such costs for 2017, when single payer is implemented. The report indicates that out-of-pocket costs will decrease for lower income participants in 2017, which means they will likely increase for other participants.

Federal Revenues: Medicaid

The total Vermont state budget is about $5 billion. Forty percent of our revenues come from federal sources. Medicaid, a cornerstone of Green Mountain Care funding, accounts for most of the federal dollars. The UMass report assumes that federal support will increase dramatically with the Affordable Care Act (ACA, or ObamaCare).

But recently the feds have denied Vermont's request for additional premium support for our healthcare reforms. Officials have stated the reduction is indicative of a "capacity" issue as the cost of the ACA has increased since the law's passage.

A risk to state solvency

The administration's single payer plan has significant and serious financial risks, likely outweighing benefits. Converting to a government health care system, funded by taxes, will double the size of state government in 2017. At this magnitude, errors or wishful thinking regarding projected costs or revenues could quickly wipe out Vermont's fund balance. Further, hospitals and providers also face enormous financial risk.

Isn't there a less risky way to provide health care for the 4 percent of Vermonters who are currently uninsured and don't qualify for Medicaid? After all, 2017 is just four years away.

Wendy Wilton has served as treasurer of the City of Rutland since 2007, and was a candidate for state treasurer in 2012. Wilton is the recipient of the 2012 Vermont Municipal Clerks and Treasurers Treasurer of the Year Award for her advocacy on issues relating to Vermont municipal government.

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